Has US ethanol consumption really fallen off a cliff?
At first sight, it might appear so.
Production of the biofuel fell by 13,000 barrels, or 1.6%, a
day last week, while stocks soared by nearly 6% to 18.9m barrels - the biggest
gain in nearly two years.
And this when imports from Brazil fell to 6,000 barrels,
from levels approaching 60,000 barrels the three previous weeks.
On the face of it, more than 1m barrels of demand has
disappeared, a loss which would bode ill indeed for prices of corn, the main raw
material used by US bioethanol plants.
But a hidden dynamic was at work in Hurricane Sandy, or more
specifically its aftermath, Jerrod Kitt, at broker Linn Group said.
As the US sought to fill a void in fuel supplies left by the
disaster, "company drew down heavily on ethanol inventories to blend into gasoline",
meaning these stocks effectively left official data.
The jump in inventories last week was down to these unused
stocks "being returned back into the system", Mr Kitt told Agrimoney.com.
"The data are not nearly as bearish as they might seem."
'Not very good
Not that all the weakness in the data can be put down to
Indeed, they were blamed nonetheless for a drop of 0.6% to
$7.39 a bushel in Chicago corn for December in lunchtime deals.
"There is a surprise, and that is that ethanol production
fell so steeply. We had not heard of any plant shutdowns," Mr Kitt said.
Nonetheless, ethanol production margins "are still not
really good", especially for plants which have not covered their needs ahead,
and are having to pay for supplies on the US cash market.
"Big companies such as Cargill and Archer Daniels Midland
can probably absorb it. They have probably hedged their needs ahead."
But ethanol producers buying corn hand to mouth are looking
at losses of 5-15 cents a gallon, including fixed costs.
The lower production rate implies US ethanol plants
consuming corn at an annual rate of 4.4bn bushels – below the 4.5bn bushels that
the US Department of Agriculture has factored in.